What are the notes to the financial statements?

Definition of Notes to Financial Statements

The notes to the financial statements are a required, integral part of a company's external financial statements. They are required since not all relevant financial information can be communicated through the amounts shown (or not shown) on the face of the financial statements. The notes are also referred to as footnote disclosures.

Generally, the notes are the main method for a company to comply with the full disclosure principle.

Example of Notes to Financial Statements

The first note to the financial statements is usually a summary of the company's significant accounting policies for the use of estimates, revenue recognition, inventories, property and equipment, goodwill and other intangible assets, fair value measurement, discontinued operations, foreign currency translation, recently issued accounting pronouncements, and others.

The remaining notes contain the details (including schedules of amounts) for items such as inventories, accrued liabilities, income taxes, employee benefit plans, leases, business segment information, fair value measurements, derivative instruments and hedging, stock options, commitments and contingencies, and more.

Each external financial statement should also include a reference to the notes, such as: The accompanying notes are an integral part of the financial statements.